Food Industry Forecast:

Key Trends Through 2020

Crucial Trends Transforming

the Industry

David HenkesTechnomic

Technomic Is…

–Founded in 1966, Technomic is a fact-based

consulting and research firm focused on the

F&B channel

–Our mission: To be the first call you make for

insights and intelligence

Where We’ve Been

Consistent growth1

Few disruptions3

Predictable costs4

Chain-driven expansion2

Relatively “clear sailing”5

What’s Next

A More Challenging Environment

An Industry Transformation

• Structure

• Operating environment

• Business practices

• Politically

• Economically

• Environmentally

• Healthfully

• Competitively

What Will Drive Change Within the Industry?

LocalizationConsumer Demands

Transparency

Specialization/Deconsolidation

PolarizationTechnology/

Big Data

1 2 3

4 5 6

* Within 5–7 years

$13–$15 mandated minimum wage by 2020

Worker shortages

Benefits, especially health care

Against a Backdrop of Rapidly Escalating Costs

Prices, availability, global demand Commodities/

Inputs

Food (sourcing, traceability, labeling, nutrition)

Labor (licensing, training)

Regulatory

compliance

costs up

minimum 50%*

Labor

50–100%

rise in costs*

Infrastructure disrepair

Intermodal rates (rail capacity issues)

Severe driver shortages

Congestion/delays

Against a Backdrop ofRapidly Escalating Costs

Utilities, especially heating/cooling

Insurance

Property damage

Delays

Weather-related

User fees/special assessments/taxes

Transportation/

Logistics

costs up 50–100%*

* Within 5–7 years

Consumer Demands Intensifying

…but will remain highly value-oriented.

“Health-oriented”Want fresh, natural,

additive-free food

EthnicWant bold, authentic,

adventurous meals

Polarized Different priorities on

value and service

UrbanWant convenient,

sophisticated

experiences

Activist Demand transparent, local,

sustainable practices,

often through regulation/

mandates

More consumers becoming increasingly…

1

89%

Health &

wellness

84%

Buying local

84%

No chemicals/

pesticides

82%

Clean labels

82%

Sustainably

produced

79%

Humane animal

treatment

79%

No hormones/

antibiotics

Consumers Require Operators to Meet Their New Demands

Operators agreeing that “________ will have a great or

moderate influence on purchase decisions in the future.”

“(Farm-to-counter) is not a passing fad.

It’s only going to get stronger.”

— National Restaurant Association

Rise of Local2

“Local” Becoming a Major Factor That Consumers Equate With…

fresh

healthier

small business

food with a story

high quality

socially responsible clean

sustainable

natural

Shift to “Local” Will Affect

Menus PurchasingOperations

SourcingDistributionMarketing

Definition of Local Is Subjective, Multifaceted

Fresh and natural

Family-owned producer

Delivered direct by producer

Artisan/craft

Small-sized producer

Within 150 miles

Chains Seek Out Ways to Showcase Local Ingredients

S’mores “concrete”made with pie from

a local bakery

Crispy chicken and grilled watermelon wedge

from a local farm

Short of Local, “Food With a Story”

“When questions don’t appear

to be answered or to be clearly

addressed, the assumption is

we are hiding something.”

— Linda Eatherton

global food and nutrition practice, Ketchum

Transparency3

Transparency Has Many Facets

“True” net cost

Unbundled cost

Living wages/health insurance

Fair trade

Diversity

Executive compensation

Ingredients,additives

Growing andprocessing methods

Origins

Sustainability

Environmentalimpact

Animal welfare

Conservation

PricesProducts Performance Planet

Operations, Menus Under Scrutiny

Transparency in Pricing Will Change Operator Behaviors

Today: inefficient

Today: 10 operators, 10 prices

Tomorrow: alternate channels

introduce transparency

Big Data Will Have Dramatic Impact

“We make decisions not based

on what you bought today, but

what you have bought over the

last two years. You don’t have

to know,

— Nishat Mehta, EVP of global partnerships, dunnhumby, exclusive marketer for Kroger

but we know.”

4

Foodservice Also Will Benefit From Big Data

— Jeff WinemanEVP of new business development at Levy Restaurants, after

losing a concession contract to the more data-savvy Aramark

“Food quality is still important, but it’s not No. 1

anymore. Now it’s data, it’s analytics.”

Technology/Big Data Poised to Impact

PricingProduct

assortment

Demand planning/

forecasting

Market reach and

effective-ness

Online Options Expanding

Polarization5

“The shrinking

middle class is not

going out as much

because they can’t afford

it. [Operators] have to

address this group.”

— NPD Group

Polarization Is a Growing Factor

Industry growth

Pricing and profitability

Policy

Value-oriented Consumers Becoming Critical to Growth

— Wendy’s CEO Emil Brolick

after disappointing third quarter sales

“If you look at the last 10 quarters in the

industry, the price/value customer growth

has been stronger than the non-value

customer.”

At the Other End of the Spectrum

Opportunities Will Lie in Affordable Quality

Price:

$6.25

Specialization Is on the Rise

Menus Operations

Number and type of

industry participants

Blurring of segments

Overall market

structure

6

Single-item Specialists Will Flourish

Traditional retail and innovative

“foodservice alternatives” will take share by

diminishing restaurant advantages of

enjoyable experience, quality and

convenience.

Consumer Options Expand

Fresh meals/ kits

Subscriptions

Personal chefs

Food trucks

GrocerantsFresh

prepared foods

Next generation

vendingSnack boxes

FINAL THOUGHTS

Market Structure Changing

► Subscription/delivery services/food lockers

(e.g., Amazon Fresh, Instacart, community-supported agriculture)

► Traditional retail FPF will grow dramatically

► “Grocerants”/food as theater (e.g., Eataly)

► 3–5K mini fresh stores (e.g., Little Waitrose, Rewe on the Go)

► Expanded, year-round “farmers” markets

Traditional retail and innovative

“foodservice alternatives” will take share by

diminishing restaurant advantages of enjoyable

experience, quality and convenience.

Market Structure Changing

Traditional retail and innovative

“foodservice alternatives” will take share by

diminishing restaurant advantages of enjoyable

experience, quality and convenience.

► Fresh-delivered meal kits (e.g., Blue Apron) will grow to $3–$5B

► “Next generation” vending, kiosks, pop-up stores will be to $10–$20B

► Private dinners (e.g., Feastly, Airbnb)

► Private chefs for everyday meals and special occasions

► Personalized delivered foods (e.g., cereal, coffee)

$393

$262

$245

$187

$210

Food Industry Sales Growth ($B)

2014–24

Annual Growth

Reta

ilF

oo

ds

erv

ice

1.5%

5.5%

3.0%

4.5%

3.5%

2014

$1,307

Traditional /1

Nontraditional /2

Top 500 chains

Independent restaurants /3

All other

1. Includes supermarkets, super centers and mass merchants

2. Includes club stores, dollar stores, c-stores, fresh format, limited assortment, drug, online and other

3. Includes small chains

31% 26%

20% 24%

19% 18%

14% 16%

16% 16%

Food Industry Sales Growth ($B)

Re

tail

Fo

od

se

rvic

e

2014

$1,307

Traditional /1

Nontraditional /2

Top 500 chains

Independent restaurants /3

All other

$1,804

65 13

165 33

84 17

103 21

79 16

$497 100%

$2024

% Share

of Growth

1. Includes supermarkets, super centers and mass merchants

2. Includes club stores, dollar stores, c-stores, fresh format, limited assortment, drug, online and other

3. Includes small chains

Conclusions

Business is

fundamentally changing

1Change has major

implications

2

Supply chain will

undergo a revamp

3Innovation, reach

and efficiency are critical

4

May need new

“game plan”

5

Questions